I Own What?! The Low-Tech Wired Index Fund

When a fund has "Wired" in its name you probably don't expect it to hold companies that sell underwear, insurance or oil. But the fund world's a funny place.

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Since we started the I Own What?! feature a few months ago, some readers and industry vets have asked us to highlight the $80 million Investec Wired Index fund. Despite its decidedly New Economy and techy name, many of the holdings seem downright dowdy, with stocks like retail giant Wal-Mart, insurer American International Group and oil titan Schlumberger.

We're finally getting around to covering it now, just as it's in the process of swallowing Investec's young and vanishing Internet.com Index and Wireless World funds, home to a combined $18 million.

The upshot: The low-tech "Wired" fund absorbing a "wireless" fund and a Net fund illustrates why you should always skim through a fund's prospectus and holdings before letting its performance and name convince you of where and how it will wisely invest your money.

The Wired fund tracks an index of 40 stocks picked by a steering committee organized by the folks at Wired magazine, which bills itself as "the journal of record for the future." These folks look for companies that display at least one of the following attributes, some of which seem like plain-old nouns rather than descriptors: globalism, communication, innovation, technology and strategic vision. The stocks they pick are then weighted in the index by their market capitalization, with $30 billion used as a market-cap ceiling.

Given the fund's name you would expect a tech-heavy portfolio, but with those fuzzy criteria it's not a surprise that at the end of last month it held shares of companies like Marriott, State Street and even (gasp!) Enron, though the bankrupt equity trading firm will no doubt disappear from the index once it's rebalanced.

Wired, Eh? When you think "wired," do you think Wal-Mart or Marriott?
Stock	Percentage of Net Assets
Wal-Mart	4.9
American International Group	4.3
Schlumberger	3.7
Walt Disney	3
State Street	2.5
Enron	2.4
Marriott International	1.5
Source: Investecfunds.com. Holdings through Dec. 31.

This eclectic approach helped the three-year-old fund gain 69% in the heady days of 1999, but it's fallen 17% and 29% in the past two calendar years. Over the past three years the fund averages a 2.6% annual loss. That might not sound great, but it actually only trails the S&P 500 by about one percentage point and beats its average peer in the battered, tech-sick big-cap growth fund category, according to Chicago research house Morningstar.

The problem with the fund isn't its returns, but the expectations investors might logically have given its name. As someone who's watched investors talk about their research process in focus groups, I can say that many would have assumed this is a tech sector fund despite its classification elsewhere in Morningstar's database. For its part, competing fund tracker Lipper gives the fund an ambiguous and generic "sector" classification.

Now let's imagine the pickle faced by the few folks owning shares of Investec's Internet.com Index and Wireless funds. These two funds, as you might expect, put the lion's share of their modest assets into the tech and telecom sectors, respectively. If you had bought shares of these funds, you expected to be invested in tech and telecom stocks, but now you're going to shift into the vague realm of the Wired Index fund. Picture young Shep buying shares of a "wireless" fund, only to end up in the "Wired" fund, and you'll get the picture.

The bottom line for Shep and the rest of us is that you need to do your homework before you buy shares of a fund.

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